Friday, December 20, 2013

On November 25 the Census Bureau released its latest
package of tables describing American families and living arrangements. These tables highlight the growing complexity of
living arrangements among children—and the challenges that demographers and
housing analysts face in charting changing household composition.

Since 2007 these tables have included
a breakdown of family groups that identify couples who were not legally married
but were joint parents of at least one minor child in the household. This change reflects the trend for families
to increasingly be started by the birth of a child rather than by marriage.
Over 85 percent of births to teens are out of wedlock, as are over 60 percent of births to
20-24 year olds and over 30 percent of births to 25-29 year olds. Among those
in their 20s co-residence of the parents is usually the norm, but in many
cases, marriage does not take place for several years, and may never take
place, certainly if the couple splits up.
Prior to 2007, these particular family groups were lumped into the
category of “other families” with either a male or female reference person as
head. It was impossible under this old
definition to distinguish in the tabulated data when unmarried family groups contained
joint parents.

Many who referred to the older
data assumed (incorrectly) that if adults in such family groups were not
“currently married,” then the child or children were living in a “single”-parent
household. The implication was that unmarried
two-parent households would behave more like one-parent households than like
married couples across a wide range of issues of importance for public policy,
including housing consumption.

The magnitude of the numbers of two-parent families under the
old and new definitions can be seen in Exhibit 1. While only about 7 percent of two-parent
families are not married, that number is up from 5 percent in 2007. (Click exhibits to enlarge.)

In 2013 about 76 percent of all parents of minor children
were married. Among young adults with minor children, however, the share that
is currently married is much lower than this average (Exhibit 2). Only 43
percent of such parents under the age of 25 are married, as are just 65 percent
of parents age 25-29. The higher shares
of older parents of minor children that are married reflect both the lower
share of births to unmarried women when these parents were younger as well as
the tendency for people to marry later. Whether today’s younger cohorts of
parents will carry forward higher percentages of unmarried two-parent and
“single”-parent living arrangements when they reach middle age remains to be
seen. I have put the word “single” in
parentheses because it refers to legal marital status only, and these parents
may well be partnered.

When the parents of minor children are broken down by
race/ethnicity we can see quite a large amount of variability in
marriage/living arrangements (Exhibit 3).
The largest discrepancy is between Blacks and Asians. Only 51 percent of Black parents are
currently married compared to 89 percent of Asian parents of minor children.
The share of non-Hispanic White parents of minor children who are married is
almost 82 percent. Fully 42 percent of Black parents are in “single” parent living
arrangements compared to only 9 percent of Asians. We would like to be able to
identify the degree to which these differences are accounted for by differences
in age of parents and by nativity status, but the data in the Census Bureau’s
releases do not allow us to fully do this.
The data are especially silent when attempting to determine the presence
of non-parent adults in the “single” parent category.

While identifying joint-parent unmarried couples as a
separate category is a step forward, especially among parents in their 20s, a
further breakdown of the data is still needed to better describe the modern
family. Married couples consist of
persons in their first marriage and those who have been remarried. If we are now identifying unmarried parents
that are both the biological parent of at least one minor child in the
household, shouldn’t we also identify married couples where only one parent is
the biological parent of any child? Some
“single” parents are living with a partner to whom they are not married, who
for all intents and purposes are helping to support the family and acting like
a parent. Some “single” parents are
living with non-partner adults who also might be playing parental roles. Many children are in “joint custody”
households. These “blended” and
“extended” living arrangements are all very much part of the modern family, but
cannot be readily identified in the Census data, especially by age cohort.

The next steps that the Census Bureau can take to present a
better picture of the modern family seem straightforward. Marital status could include a category
“remarried,” and married couples should be further broken down by marriages in
which one or both partners are remarried. Unmarried parents of minor children could
be broken down by those living with a partner and those not. Among those not
living with a partner, the presence or absence of other adults could be
identified. Minor children in married
couple living arrangements could be identified as the biological child of both
parents or as a stepchild of one parent.
And minor children in the household could be identified as living
exclusively in the household or regularly spending some of their time in
another household.

Generational differences in living arrangements at the
onset of family formation, and the extent to which these differences persist as
cohorts age, are key descriptors of the modern family. Therefore, many of the
CPS tables should provide the age of the reference parent as a variable that is
cross tabulated against other variables.
It would also be helpful if these new tables are produced separately by
race/Hispanic origin of the reference parent.
This detailed breakdown by age and race/Hispanic origin will stretch the
CPS data quite thin, to be sure, but the user can always aggregate up to gain
robustness.

Finally, a few comments about the sharp decline since 2007
in Exhibit 1 in the number of two-parent families with minor children. This
decline is certainly related to the effects of the Great Recession. One reason for the decline is that
immigration fell sharply in 2006 and has just begun to recover. Immigrant women
have higher fertility than native born and experienced the greatest fertility decline
during the economic down turn. These are trends consistent with the poor
economic conditions that have affected young adults most severely. Immigrants also have a much higher share of
births to married couples compared to native born (76.4 percent versus 61.2 percent), and the
decline in immigration during the Great Recession thus contributed to the
recent rise in the share of all births that are to unmarried women.

It is normal that during a recession, both marriages and births are postponed. A recovery
in marriages would be expected to lag the recovery in the economy to allow for
some planning of the event. Meanwhile,
both the decline and the recovery in births should each lag the trend in the
economy by a year or more. Although
year-to-year instability in the CPS series is often the result of simple random
variability, perhaps the upturn in 2013 in the number of families with minor
children is further evidence that the economic recovery has begun in
earnest.

Thursday, December 5, 2013

Affordability problems for American renters have skyrocketed over the past decade, both in number and the share of renters facing them. The inability of so many to find housing they can afford dramatically impacts the health and well-being of renters, as lower-income households cut back on food, healthcare, and savings, just to keep up. Our new report, America’s Rental Housing: Evolving Markets and Needs, will be released next Monday December 9 in Washington, DC. The daylong event will feature a keynote address from HUD Secretary Shaun Donovan as well as remarks by Colorado Governor John Hickenlooper,Senator Mark Warner of Virginia, and many others. The event will be webcast live from 11:30 a.m. – 4:30 p.m. (Eastern) at www.jchs.harvard.edu. This new report on America's rental housing finds that half of U.S. renters pay more than 30 percent or more of their income on rent, up an astonishing 12 percentage points from a decade earlier. Much of the increase was among renters facing severe burdens (paying more than half their income on rent), boosting their share to 27 percent. These levels were unimaginable just a decade ago, when the share of Americans renters paying half their income on housing, at 19 percent, was already a cause for serious concern. Tune into the webcast on Monday for more findings from this new report.

AGENDA(Watch the LIVE WEBCAST @www.jchs.harvard.edu)Monday, December 9, 2013 (Eastern time, subject to change)

Monday, December 2, 2013

From time to time, Housing Perspectives features posts by guest bloggers. This post was written by Rob Couch, a member of the Banking and Financial Services, Real Estate and Governmental Affairs practice groups at the law firm Bradley Arant Boult Cummings in Birmingham, Alabama. Rob also serves on the Housing Commission of the Bipartisan Policy Center in Washington, DC.. Previously, he served as General Counsel of the U.S. Department of Housing and Urban Development and as President of the Government National Mortgage Association (Ginnie Mae). His post reflects thoughts he shared at a Brown Bag Lecture delivered at the Harvard Kennedy School on November 14, 2013.

In my lunchtime talk at the Harvard Kennedy School, sponsored by the Joint Center for Housing Studies, I discussed why recent government efforts enacted in the wake of the financial meltdown have caused increasingly stringent underwriting standards. These efforts have resulted in fewer homeowners, particularly first time purchasers, and the widening of the homeownership gap between certain minorities and white Americans. One of the questions from the audience during my talk came from a young man who challenged the continuing validity of the “Dream of Homeownership.”

After the bubble of 2007, some might think homeownership isn’t as worthy a goal as it used to be. In particular, younger Americans who have recently witnessed homeowners suffer financial loss or foreclosure due to declining home values or job loss may be especially wary. A sizable percentage of young people are not yet in a stable career and want the flexibility that renting offers, and many young Americans who do want to own a home cannot meet underwriting criteria or afford a down payment given the combination of student loan debt and high unemployment.

Nonetheless, as Eric Belsky explains in his paper, The Dream Lives On: The Future of Homeownership in America, most young adults surveyed say they intend to buy a home in the future. Furthermore, the results of several surveys cited in Belsky’s paper reveal that a majority of both owners and renters believe that owning makes more sense than renting. And for good reason; numerous studies have confirmed the economic and societal benefits of owning a home.

As a homeowner makes payments against his mortgage, and as the value of the property appreciates, the borrower’s equity in the home increases. If necessary, this equity can be accessed though the sale of the home or through a “cash out” refinance or a revolving line of credit. Homeowners also enjoy tax benefits as, in most cases, the annual interest paid on a mortgage and property taxes are fully deductible. Due to the long-term fixed-rate feature of most mortgages and the lifetime cap placed on adjustable-rate mortgages, homeowners are insulated from some of the inflationary pressures on the cost of housing faced by renters.

For the past thirty years, the wealth gap between the most affluent citizens and moderate wealth families in the United States has steadily widened. Households that are able to convert their greatest monthly living expense – rent—into a tax protected asset through amortizing long-term debt have a powerful tool for accumulating wealth. The family that owned its own home in 2010 had a median net worth of $174,500, compared to families who rented and had a net worth of $5,100. Belsky’s paper provides a more detailed analysis of the financial benefits of homeownership.

The benefits of homeownership extend beyond the financial ones, though. Children who grow up in owned homes have higher academic achievement scores in both reading and math and have a 25% higher high school graduation rate than children whose parents rent. Children of homeowners are twice as likely to acquire some post-secondary education, and they are 116% more likely to graduate college. As adults, they earn more and are 59% more likely to own their own home, extending the benefits of homeownership on to the next generation.

Society as a whole also benefits from homeownership. Research has shown that homeowners are more likely to be satisfied with their neighborhoods, and thus more likely to give back to their communities. People who own their homes more often participate in civic activities and work to improve the local community, and they are 15% more likely to vote. Lastly, they tend to have greater longevity in a residence, leading to a more stable neighborhood.

Considering the benefits homeownership offers to society as a whole, young Americans aren’t the only demographic group affected by recent policies. Recent reports estimate that the African-American community, with wealth more concentrated in homeownership than any other asset, lost more than 50% of its net worth during the housing crisis. The deterioration in homeownership has been disproportionately severe on African-Americans, Hispanics, and younger people, leading to a widening of the gap in minority/white homeownership rates.

Recent government efforts to protect borrowers who fail to pay their loans, particularly settlements that have been extracted from the industry and increased servicing standards, have had the effect of compounding the losses from bad loans, thereby encouraging even more conservative lending and hurting a much larger group of potential borrowers by depriving them of the opportunity to achieve homeownership. The overarching policy goal should be to facilitate homeownership, not to shift the burden of non-performance from defaulters to aspiring borrowers. Policies need to change if we wish to continue making homeownership a reality for the broadest group of eligible borrowers in the United States. My recent paper, The Great Recession’s Most Unfortunate Victim: Homeownership, discusses how we can address this important issue.

Thursday, November 21, 2013

Since its inception nearly twenty years ago, the Remodeling Futures Program of the Joint Center for Housing Studies has been investigating trends in contractor size, concentration, performance, and survivorship to better understand the evolving structure of contractors serving the residential remodeling market. Unlike the national homebuilding industry, which saw significant achievements of scale and consolidation in recent decades, the professional remodeling industry continues to be highly fragmented, where the vast majority of remodeling companies are relatively small, single-location businesses that likely will not experience any significant growth over the course of the business’s life-cycle. Two thirds of remodelers are self-employed, and fully half of payroll establishments have total revenues of under $250,000. Yet our research suggests that there are significant benefits to be gained through larger scale businesses.

The evidence for the benefits of scale in the remodeling industry is compelling. Comparing the revenue growth of larger-scale remodeling companies to the industry as a whole shows that larger-scale remodelers benefit from significantly stronger revenue growth. Where the average revenue of all residential remodeling contractors increased less than 18% in inflation-adjusted terms during the last industry upturn from 2002-2007, larger-scale firms with annual revenues of approximately $1 million or more increased their average revenue by over 30% during the same period. Additionally, larger-scale remodeling contractors benefit from higher revenues per employee, which implies that they enjoy greater labor productivity (Figure 1). While an admittedly crude measure of efficiency and productivity, the trend is obvious that larger remodeling businesses are seeing a benefit of scale.

Source: Unpublished tabulations of the 2007 Economic Census of Construction, U.S. Census Bureau.

Furthermore, there is evidence that larger-scale remodeling firms suffer significantly lower failure rates across the rocky business cycle (Figure 2). Remodelers with estimated receipts of $1 million or more during the last industry upturn in 2003–04 had a failure rate of only 2.7% that year, and their failure rate remained essentially unchanged during the cyclical downturn in 2009-10. These low and stable failure rates for the largest remodelers are in stark contrast to the roughly 20% failure rates of smaller remodeling businesses. With the efficiency gains that come along with achieving scale economies, larger remodeling companies seem much better equipped to ride out the volatile business cycles in the remodeling industry.

Source: JCHS estimates using U.S. Census Bureau tabulations of the 1989-2010 Business Information Tracking Series.

Although larger-scale remodeling firms enjoy significant benefits to scale, the industry has remained fragmented over time due to the many obstacles to gaining scale such as low barriers of entry, highly customized work, and difficulty attracting capital, to name a few. Understanding how remodeling companies are overcoming these major hurdles in their pursuit of scale economies should provide insights into how the industry is likely to continue evolving over the next several decades, as well as what opportunities exist for more widespread consolidation moving forward.

To this end, the Remodeling Futures Program has been conducting in-depth interviews with several dozen remodeling industry leaders including founders, presidents, and CEOs of larger-scale remodeling companies on the topic of benefits from scale and challenges and strategies for achieving scale. Key research questions for the project focus on exploring the major approaches used for gaining scale, challenges and opportunities unique to each type of strategy, and whether certain types of remodeling specialties or niches are more or less likely to attempt to establish a larger-scale or even national presence.

A key insight gained from these interviews is that successfully achieving scale in the remodeling industry has more typically occurred using strategies outside of the traditional model of organic expansion and acquisition. Common among remodeling companies that have been successful in establishing a larger-scale presence are strategies or approaches that involve strategic partnerships or arrangements, such as:

Strategic Alliances: When expanding to new markets, building brand awareness and trust takes a significant investment of time and money, so securing strategic alliances or partnerships with long-standing, nationally known manufacturing and retail brands to sell, furnish, and install products and projects is very effective for gaining entry into new markets with instant name recognition and credibility with consumers, who, given the same quality and price, will choose the brand with which they are already most familiar. Strategic alliances ultimately provide a contractor with a high volume of quality leads in new markets.

Franchising: Franchising is a well-established scaling strategy in many industries that allows a business to quickly expand its brand recognition and reach without the challenges of managing each independently-owned and operated franchise location. Franchising in the remodeling industry seems to be more successful with single focus or specialty businesses, such as painting and insurance restoration services that are easier to standardize and streamline.

Outside Investment: Pursuing outside investment through private equity partnerships, for example, provides a company with an influx of working financial capital for expanding into new markets, developing additional lines of business or products, or restructuring operations or management to better foster growth. Though a highly effective way to scale a remodeling company toward a national presence, this strategy of securing outside investment has not been more common because investors are deterred by the relatively high-risk nature of such a volatile and fragmented industry.

Since the remodeling industry is so diverse, with business segments and market niches that cover the full spectrum from full-service and design/build firms to specialty replacements and handyman services, there is no one-size-fits-all approach to achieving scale. Companies often employ multiple business strategies and arrangements either consecutively or concurrently. Some of the biggest benefits of scale reported by industry leaders include improved buying power, lower costs, efficiency of centralized accounting and management, and improved use of technology systems, as well as geographic diversity (i.e., not being dependent on the economic strength of one market or region), greater ability to explore new business opportunities, greater consumer recognition and trust, and being able to provide growth opportunities to key team members. The many issues surrounding this topic of strategies, benefits and challenges of achieving scale in the residential remodeling industry will be explored in greater detail in an upcoming Joint Center working paper.

Thursday, October 31, 2013

The
U.S. fertility rate is at near replacement level, where a woman bears two
children over her lifetime (just enough to ‘replace’ herself and her
partner). The Total Fertility Rate
(TFR), which is how many children the average woman in the U.S. will have if
she survives through the reproductive ages and bears children at each age at
rates U.S. women are currently experiencing, is just below this level. Replacement fertility leads to a “pillar”
like age structure, where the base of the pillar (children) contains about the
same number of people per five-year age group as the middle of the pillar (parents). For the U.S., that number is currently about
20 million (Exhibit 1).

This
situation can be contrasted with fertility rates and age structures in most
other industrialized countries.Below-replacement fertility in much of Europe and in a number of Asian
countries has created “mushroom cloud” shaped age structures where the numbers
of children are just fractions of the size of the parents’ generations.In Germany, for example, the 0-4 and 5-9 age
groups are only about half the size of the 40-44 and 45-49 age groups (Exhibit
1).Age structures for other countries
with TFRs of 1.6 or less are broadly similar to Germany’s (Table 1).Such an imbalance in age structures has the
potential to create enormous problems for these societies in areas such as
institutional stability (e.g. schools), labor force succession, housing market
dynamics, and old-age social security.Shrinking class sizes, workforce shortages, declining demand for larger
homes that prevent older households from downsizing, and payroll tax
collections that are insufficient to pay for retirement benefits are all
consequences of long periods of below-replacement fertility.

So
why is the U.S. such an outlier compared to other industrialized countries in
having experienced recent near replacement-level fertility and a relatively healthy
age structure? And, is the U.S. likely
to retain this advantage in the future?
The answers to these questions point to the importance of immigration in
shaping the present demography of the U.S., and to uncertainty about future
levels of immigration and the role it will play in the future.

Decomposing
the U.S. age structure into immigrants (first generation), the children of
immigrants born in the U.S. (second generation), and third or higher
generations (parents born in the U.S.), illustrates the importance of
immigration in both backfilling the smaller baby bust cohorts born between the
mid-1960s and mid-1980s and in increasing the cohort size of children born here
in the past 20 years (Exhibit 2).
According to a recent Pew Research Center report, immigrant fertility rates are about 50 percent
higher than native-born rates. While
in 2010, only 17 percent of women of reproductive age were immigrants,
immigrant women bore a quarter of all children born in the 2000s. Replacement
level fertility in the 2000s was achieved by above-replacement immigrant
fertility counter balancing below-replacement native fertility.

The
future stability of the age structure of the U.S. will depend on levels of
immigration and on fertility trends of both the native born and of
immigrants. The Pew report cited above
documents how dramatically fertility rates have fallen since the Great Recession,
with the largest percentage declines occurring among immigrants. Between 2007 and 2010 the number of births
per 1,000 women age 15-44 (the General Fertility Rate) fell for native-born
women by 6 percent while for foreign-born women the decline was 14 percent.
Whether fertility declines have been mostly driven by high unemployment and low
wages and so will rebound with an improving economy is too soon to tell. Any rebound could still leave fertility
levels below the replacement rate. But
in any case, it is unlikely that U.S. women will soon adopt the very low levels
of childbearing that characterize much of the developed world. The influence on fertility of “pro-family” fundamentalist religions in the U.S. and the not-unrelated political hostility to birth
control and abortion in many parts of the country continue to support higher
levels of U.S. childbearing.

However,
the size and composition of future streams of immigration are very much in
question. Immigration reform has been
slow to gain traction in the U.S. Congress, and the outcome of any new
legislation on future immigration levels remains uncertain. More to the point, perhaps, is the fact that
several important sending countries are undergoing fundamental transformations
in both their economies and demographics that will diminish their propensities
to send immigrants. For example, Mexico
accounts for about 30 percent of all foreign-born living in the U.S., and immigration
from Mexico has long been a safety valve to release excess population growth in
that country. But Mexico has reduced its
fertility by over one-half since 1985, with much of the reduction occurring in
the past decade. In the future, as long
as Mexico’s economy continues to prosper, we can expect fewer will need to
leave Mexico to find work. Similar
transformations are occurring in other sending countries such as India and
China. Age structures in these countries have begun to transform from “pyramid”
to “pillar” shapes.

Before
closing, I want to say a few words about one industrialized country, Sweden,
which has succeeded in maintaining near replacement fertility without depending
on high fertility immigrants. There are
indeed immigrants to Sweden who are needed to fill certain jobs, but they
mostly come from other low fertility countries in Europe, especially the
Balkans, and the immigrants retain the low fertility of their countries of
origin. Sweden has a long history of low
native-born fertility going back to the 1970s, and has gradually adopted strong
social policies to encourage its citizens to voluntarily become parents,
including generous maternity/paternity leaves, significant health care and
housing benefits, and low-cost, high quality, and readily available daycare.
But even with such strong pro-natalist policies, Sweden can barely keep its
fertility at near-replacement levels.

We
should be thankful that our recent history of high-fertility immigration has
helped create an age structure that will lead to far fewer problems in the near
future compared to those facing other industrialized countries. Whether we continue to retain this advantage
will depend on future levels of both immigration and fertility (of both the
native-born and the newly arrived). To
avoid the U.S. moving toward a mushroom cloud like age structure, absent
widespread pro-natalist programs and policies as in the case of Sweden, the
depressed immigration levels and declining fertility trends of recent years
will need to be reversed.

Wednesday, October 23, 2013

In the fall of 2011, a meeting of researchers, policy makers, and practitioners convened by the What Works Collaborative highlighted the dearth of research examining the role of private investors in purchasing foreclosed properties in lower-income neighborhoods heavily impacted by the foreclosure crisis. To address this void, the collaborative funded a series of case studies in four market areas across the US that represented a range of market conditions: Atlanta, Boston, Cleveland, and Las Vegas. The case study for Boston, which was just released, focuses on the activity of investors in the city of Boston and other communities located in Suffolk County, Massachusetts. (Note: the Atlanta case study was published earlier this year; Cleveland and Las Vegas are not yet published.)

The Boston study entailed an examination of data from The Warren Group, a third-party-vendor, on real estate transactions in Suffolk County from 2007 to 2012, as well as interviews with government officials, non-profit organizations, lenders, real estate brokers, and investors in foreclosed properties. Excluding government and nonprofit organizations, investors were identified in the transaction data either as those who had acquired more than one foreclosed property over the period or those who had purchased a foreclosed property under a corporate or legal name. Key findings from the report include:

Investors accounted for a large share – 44 percent – of transactions between 2007 and 2012.

In all, a total of 437 unique investors were identified. Most of these investors can be classified as “mom and pop investors” who bought only one or two properties, but 33 investors each purchased 10 or more properties and accounted for more than 50 percent of all investor purchases. (Click table to enlarge.)

Note: Percentages do not sum to
100 due to rounding.

Source: Authors’ calculations of
data from the Warren Group.

While private investors operating on a national scale have received substantial media attention in the last year, in Suffolk County the largest investors had overwhelmingly local roots: 18 were based in Suffolk County and only two were headquartered out of state.

Large investors were somewhat more likely to invest in highly distressed neighborhoods (35 percent of their foreclosure acquisitions, compared to 31 percent of the acquisitions of all foreclosure investors), and the majority of purchases were small multifamily buildings (2-4 units) or condos. Alan Mallach has defined a typology of investors in homes in distressed neighborhoods, with a key distinction being between those who seek to make their profit by quickly flipping properties to other buyers and those who seek to profit by holding onto properties for rental income. The study found that in Suffolk County a buy-and-hold strategy was most often pursued by large investors, supported by the healthy demand for rental housing in Boston. Although a few investors did turn over a majority of their purchases in a fairly short time, others who held onto most of their properties also sold a portion of their acquisitions when the right opportunity arose. Overall, 66 percent of foreclosures purchased by large investors between 2007 and 2012 were still owned by these entities as of February 2013.

Cash was the most common form of financing, but hard-money loans from investor-affiliated lenders and mortgages from small community banks played an important role (Figure 1).

Note: Includes all
legal variations of the same lender. Some investor-affiliated
lenders have
multiple iterations.
Mortgages
include only primary-lien purchase-money loans, as identified by the authors.

Source: Authors’ calculations of
data from the Warren Group.

Given the significant presence of large investors in more distressed neighborhoods, this study primarily focused on the activities of these investors. However, based on anecdotal information, small investors face more challenges than large investors in distressed property acquisition, rehabilitation, and management due to more limited financial resources.

The primary motivation for this study was to gain a better understanding of the extent and nature of investor activity in acquiring foreclosed properties in Suffolk County in order to determine the impact investors are having on the neighborhoods where foreclosures have been common. In the end, it can be difficult to predict the long-term impacts of investor activity. On the one hand, investors have channeled a significant amount of capital into distressed neighborhoods, which may have helped absorb the high volume of foreclosed properties and stabilized conditions in those communities. Our research team found that predatory flipping and irresponsible rental property management in Boston was rare.

On the other hand, there is concern that investors who acquire foreclosed properties may not maintain them to the same degree as owner-occupants. In interviews, investors reported that due to factors such as the high market values of the primarily multifamily housing stock in Boston and the increased competition to attract tenants with Housing Choice Vouchers, they routinely undertook a fair amount of investment in properties they acquired. In fact, the median time to resale among properties resold by investors is about six months, which suggests that investors are likely to make some improvements to the properties before they are resold. However, in the view of many nonprofit advocates, these market-driven property improvements are not enough to ensure the long-term affordability and sustainability of these units. The discrepancy in these points of view reflects the motivation of many investors to undertake improvements up to the point that a decent return on these investments is likely, while community groups have broader goals of providing high-quality affordable housing and developing properties that have a positive impact on the surrounding community. Other advocates worry about investor decisions to increase rents that may displace low-income individuals and families who are no longer able to afford these units, and whether investors are crowding out potential owner-occupants looking to buy in these neighborhoods.

Nonprofits partnering with city officials and investors have been working to alleviate these concerns. One nonprofit organization’s partnership with the City of Chelsea to track code violations in investor-owned properties has led to improved accountability and code compliance among investor owners. Other groups have recognized the value of leveraging investors’ support networks and informational advantages, with some partnering successfully with local investors on the acquisition and rehabilitation of foreclosed properties. One example is the Coalition to Occupy Homes in Foreclosure (COHIF), a group of nonprofits working with the City of Boston, the state of Massachusetts, and others that are looking to acquire 30 foreclosed or at-risk homes over two years.

The Boston case study—along with other studies conducted by research teams in Atlanta, Cleveland, and Las Vegas—made an initial attempt to fill in the gaps of knowledge regarding investor activity in these central urban neighborhoods. The vast majority of investors across the four case study areas operated on a rather small scale, with a sizeable share of foreclosed properties acquired by “mom and pop” investors who purchased one or two properties. For the most part, even “large” investors in these communities were defined as those buying 10 properties, over a 4 to 6 year period, with few purchasing more than 100 properties. While these studies have shed some light on the extent and nature of investor activity, there is a need for more systematic research that can address the concern of whether investors are worse stewards of foreclosed properties than owner-occupants, as well as better determine their long-term impact on the health and stability of distressed neighborhoods.

Thursday, October 17, 2013

The home remodeling market continues to improve, with strong gains expected for the remainder of 2013 and the beginning of 2014, according to our latest Leading Indicator of Remodeling Activity (LIRA). While the LIRA continues to project annual improvement spending increasing at a double-digit pace in the near term, a slowdown of this growth can be expected by the middle of 2014.

The soft patch that homebuilding has seen in recent months, coupled with rising financing costs, is expected to be reflected as slower growth in home improvement spending beginning around the middle of next year. However, even with this projected tapering, remodeling activity should remain at healthy levels.

In the near term, homeowner spending on improvements is expected to see its strongest growth since the height of the housing boom. Existing home sales are still growing at a double-digit pace, and rising house prices are helping homeowners rebuild equity lost during the housing crash. (Click chart to enlarge.)

For more information about the LIRA, including how it is calculated, visit the Joint Center website.

Tuesday, October 8, 2013

There are few people with
more experience in housing than J. Ronald Terwilliger, chairman emeritus of Trammell Crow Residential
and this year’s presenter of the John T. Dunlop Lecture.

A graduate of the Harvard
Business School, Mr. Terwilliger returned to Cambridge last week to present his
vision of a more balanced federal housing policy.

Before
a standing-room-only audience at the Harvard Graduate School of Design, Mr. Terwilliger urged
Washington policymakers to abandon “prevailing orthodoxies” and re-direct the
$200 billion the federal government spends annually on housing to support those
families with the greatest needs. As Mr.
Terwilliger explained, we are at an inflection point in our nation’s history
that requires federal housing policy to “focus lesson subsidizing higher-income homeowners
and more on helping lower-income renters as well as low-wealth homeowners.” He
specifically cited the mortgage interest deduction as in need of reform because
it disproportionately benefits the wealthiest Americans.

Mr.
Terwilliger’s remarks were entitled Housing
America’s Increasingly Diverse Population.
Central to his call for a more balanced housing policy is the fact that
America’s demographics are dramatically changing: Our nation is becoming older and more
racially and ethnically diverse. At the
same time, many of our nation’s young adults, the 62 million echo boomers, are
beginning to form households for the first time. As Mr. Terwilliger argued, these trends will
challenge housing policymakers to develop new, more effective strategies,
including ways to increase the supply of affordable rental housing to meet the
rising demand in the marketplace.

It was wonderful to hear Mr. Terwilliger’s
evocation of John Dunlop, a man who served presidents of both political parties
and spent a lifetime bridging differences.
At a time when our nation’s politics seem so broken, we can no doubt use
more men and women like Professor Dunlop in Washington.

We thank the National Housing Endowment for supporting the Dunlop Lecture. Click the video below to watch Ron Terwilliger's speech. We welcome your comments and responses.

Thursday, September 26, 2013

With the continued growth of house prices across the
country, talk of a housing bubble is beginning to reappear in the
headlines. House price-to-income ratios
are often used to indicate a bubble, as prices have historically had a
relatively stable relationship with incomes (both mean and median). In the US, nationally, the price-to-income
ratio remained relatively stable throughout the 1990s. It began to increase around 2000 and
surpassed its long-run average of 3.65 by 2002 (Figure 1). The national price-to-income ratio continued
to increase in the mid-2000s, reaching a high of 4.63 in 2006 before rapidly
declining in 2007 and 2008 and eventually hitting a low of 3.26 in 2011. The classic bubble shape is clearly visible
in this trend. Recent price gains,
viewed in this context, do not seem to indicate the return of a bubble;
price-to-income ratios today match their early 1990s rates and still have some
room for growth before reaching their long-run average. (Click chart to enlarge.)

Notes:
Prices
are 1991 National Association of Realtors® Median Existing Single-Family Home
Prices, indexed by the FHFA Expanded-Data House
Price Index. Incomes are median household
incomes.

However, despite the seemingly straightforward relationship
between house prices and incomes in Figure 1, this indicator can be difficult
to interpret. To start, many data
sources are available for measuring prices.
One used frequently is the National Association of Realtors ® (NAR) Single-Family
Median Home Price as it is widely available for many metros and provides an
actual house price (rather than an index showing change in values) that can be
compared to income levels. The
disadvantage to this measure is that NAR house prices also capture changes in
the types of units that are being sold over time and so does not reflect how
the value of the same home changes. Repeat sales indices, like the Federal
Housing Finance Authority’s (FHFA) Expanded-Data House Price Index, which was
used to produce the figures in this post, are designed to take into account
changes in the values of homes themselves by tracking sales of the same homes
over time. However, the FHFA index can
be more difficult to interpret since, as an index, it does not provide
information about current prices. Price-to-income ratios using this data must
peg the index to a starting or ending house price.

Furthermore, identifying bubbles or other price anomalies
from price-to-income ratios can be difficult because it is not clear what is an
appropriate baseline value of the measure for comparison. Even in the aggregate US case, where the
ratio did not fluctuate more than one percent in either direction for much of
the 1990s, the linear trend is not flat and the long run average is above the
1990s levels. This becomes even murkier
when observing trends at the metro level.
Some metros, like Dallas, had stable price-to-income ratios over the
last two decades (Figure 2). Dallas did
not experience a significant bubble in the mid-2000s and its long-run average
mirrors the linear trend. In other
metros, like Phoenix, the boom-bust period led to significant fluctuations in
the price-to-income ratio after having been relatively stable in the 1990s. If the 1990s levels are to be considered
normal for Phoenix, then current price-to-income ratios remain below average
and recent growth in prices can be considered a return to normal after an
overcorrection.

For other metros, the price-to-income trend is more
difficult to interpret. Ratios in
Cleveland are well below their long-run average, but the historical trend has
been drifting downwards, so ratios in recent years could be indicating a reset
of the ratio in Cleveland to lower levels.
At another end, San Francisco has experienced a wide range of
price-to-income ratios in recent history.
Price-to-income ratios boomed in the late 1980s, decreased throughout
much of the 1990s, and then surged through the mid-2000s. Compared to its long-run average, ratios in
San Francisco are above historical norms, but, when the historical trend is
considered, prices can continue to increase before they appear “too high.” Finally, if a fundamental relationship exists
between prices and incomes, it is unclear why the ratio can vary significantly
from metro to metro. The national
average is around 3.6. In the metros
observed here, Cleveland and Dallas both have historic averages below 3.0 while
San Francisco’s is double the national average. (Click chart to enlarge.)

Notes: Prices are
1991 National Association of Realtors® Median Existing Single-Family Home
Prices, indexed by the FHFA Expanded-Data
House
Price Index. Incomes are median household incomes.

Given this variation, what can we make of the
price-to-income ratio? On a national
level, this ratio does a relatively good job of identifying substantive shifts
in the market. In the aggregate, there
appears to be a “normal” price-to-income ratio and prolonged deviation from
this trend can signal an underlying shift.
However, on a metro-by-metro level, where it can be difficult to
identify an appropriate baseline value, long-run historical context is
necessary to interpret point-in-time estimates.
In markets like Dallas and Phoenix, historical trends are consistent
enough that it can be useful to compare the current ratio to past ones. In others, like Cleveland and San Francisco, the
price-to-income ratio on its own is not especially helpful since there is no
clear way to identify a “normal” price-to-income ratio.

Monday, September 23, 2013

Housing availability in Boston has been a particular passion for outgoing Mayor Thomas Menino, who recently unveiled an ambitious plan to build 30,000 homes in Boston by allowing taller structures with smaller units, selling public land to developers at a discount, and using subsidies to spur development of more affordable housing. Last week, Joint Center managing director Eric Belsky, who served on the Housing Advisory Panel for the plan, joined other housing experts on the local NPR program Radio Boston, to discuss the mayor's plan and Boston's challenges.

Wednesday, September 18, 2013

Next Wednesday, September 25,
I will be coming to Harvard to share a message: there is a Metropolitan
Revolution underway in this country.

While the
national economy continues to suffer the lingering effects of the Great
Recession—with nearly 10 million jobs needed to make up the jobs lost during
the downturn and keep pace with labor market dynamics and more than 107 million
people living in poverty or near poverty—the federal government is mired in
partisan gridlock and ideological polarization, leaving local and metropolitan leaders
to pick up the slack.

In many ways,
this transfer of responsibility is not only a cyclical event but also a structural
change, given the harsh realities of the shifting federal budget. With a
rapidly aging national population, mandatory federal spending on health care
and retirement benefits is projected to rise by $1.6 trillion annually by
2023. This will inevitably squeeze
federal spending on critical investments around education, infrastructure,
housing and innovation. The result will be a U.S. governance structure that
looks very different in a decade: Washington will do less; local governments
and metropolitan networks will do more.

To make it
through this fiscal resort, we need to rethink power in America. Metros will lead on policy innovation; the
federal government (and even state governments) will follow.

The good news is
that smart city and metropolitan leaders aren’t waiting for national solutions
to local problems. Across the nation,
in metros as diverse as New York, Houston and Denver, Portland and Detroit, Los
Angeles and Cleveland, leaders are doing the hard work to grow jobs and make
their economies more prosperous: investing in infrastructure, making
manufacturing a priority again, linking small businesses to new investors and
global markets, giving workers the skills they need to compete.

A new
metropolitan playbook defines the Metropolitan Revolution:

First, cities
and metros are forming broad based networks to co-design and co-produce
solutions. The unique advantage that
metropolitan areas have over states and the national government is that they
are networks of leaders, rather than hierarchies of government officials.
Successful metro-level initiatives incorporate broad input and support—from
business and civic leaders, heads of universities and philanthropies, as well
as elected officials.

Second, city and
metropolitan leaders are taking the time to understand the starting points of
their disparate economies and set distinctive visions based on their
analysis. The Great Recession reminded
us that metro areas perform different functions in the global economy depending
on what they make, the advanced services they provide, what they trade and
which cities and metros they trade with. What makes Denver a powerful metropolis on the global stage is different
from what propels Detroit; the same for Portland, Pittsburgh and Phoenix.

Finally, city
and metropolitan leaders are “finding their game changers” -- designing, financing
and delivering transformative economy-shaping solutions that build on their
distinctive assets and advantages. The
Applied Science Districts in New York City. State-of-the-art transit in Los Angeles and
Denver. A new export strategy in
Portland; smart manufacturing initiatives in Northeast Ohio; successful efforts
to integrate immigrants in Houston. Even
a burgeoning Innovation District in Detroit.

Cities and metropolitan areas will do more because they
can.

The United States is the world’s quintessential Metropolitan
Nation. All 388 metropolitan areas house
84 percent of the nation’s population and generate 91 percent of the national
GDP. The top 100 metropolitan areas in
the United States alone sit on only 12 percent of the land mass of the country
but house 65 percent of the population, generate 75 percent of the GDP. They also concentrate and congregate disproportionate
shares of the assets that the nation needs to compete globally: modern
infrastructure, skilled workers, advanced industry firms and advanced research
institutions.

The United States also devolves more fiscal responsibilities
to cities and metropolitan areas (and their states) than other countries. Despite the attention given federal efforts
like No Child Left Behind and Race to the Top, local and state governments already account for over 90% of total
government spending. Despite the focus
on still unrealized proposals like a National Infrastructure Bank, states and
localities already account for over 70 percent of transportation infrastructure
spending and are the driving force behind such investments in such asset categories
as roads, transit, rail, ports, airports, water and sewer and, of course, urban
regeneration and basic municipal services.

Make no mistake:
cities and metropolitan areas (and a mixed group of states) will drive strategic
investments in education and infrastructure going forward, and they already
are. San Antonio’s recent passage of a
ballot initiative—Pre-K for SA and Detroit’s corporate and civic support for
the M1Rail along Woodward Corridor—are only the latest examples of communities
(broadly defined) stepping up to get stuff done.

Yet it is also
likely that cities and metropolitan areas will lead in areas traditionally left
to the federal government, like investments in basic and applied science and
affordable housing. The recent
sequestration of federal funding for such traditional federal responsibilities
as the National Institutes of Health and public housing sent a strong signal
about how unreliable our national government has become. The response will be growing state and
metropolitan support via the ballot box for basic and applied research (e.g.,
California’s $3 billion Stem Cell Research and Cures Initiative) and growing
local and metropolitan innovation on the affordable housing front via
inclusionary zoning, public private partnerships and local housing trusts
capitalized through real estate transfer taxes.

The bottom line
is this: the health of the United States should never be defined by what
happens in Washington, D.C. Our
metropolitan areas are the engines of our economy, the centers of global trade
and investment and the driving forces of national competitiveness and
prosperity. In the coming decade -- in
this century -- they will be the vanguard of policy innovation and national
progress.

Thursday, September 5, 2013

While home prices and construction levels are on the rise, the most
recent estimates suggest that the rate of household growth slowed during the
first half of 2013 from what had been promising indications of a rising trend
through 2012 (Figure 1). The rise in household growth last year had
been a key source of optimism that the housing recovery was being built on the
solid ground of expanding demand for additional housing. The latest indication of a possible slowdown
in household growth raises a cautionary flag that we have not fully turned a
corner on the slowdown in household formation that began during the Great
Recession. It also raises questions about how long a recovery in the
single-family for-sale market can be sustained absent greater growth in
homeowner households.

The source of the recent estimates is the quarterly Housing Vacancy Survey (HVS) conducted by the Census Bureau, which in addition to providing
data on vacancies and homeownership rates also provides the timeliest available
estimates of the number of owner and renter households. The HVS quarterly
estimates are somewhat volatile, but this volatility can be dampened by
examining averages of the previous four quarters, which is how the annual HVS
estimates are produced. There are also non-trivial differences in the count of
households from this survey compared to the decennial census for reasons that
are not well understood. Over the course of the past decade household
growth estimates from the HVS were on the order of 15 percent below what the
decennial censuses indicated, suggesting there is a downward bias in household
growth from this survey. But while there are questions about the accuracy of
the overall count of households from the HVS over time, there is still reason
to believe that the survey is useful as an indicator of the latest trends in
the direction of household growth.

The HVS data for the second quarter (Q2) of 2013 suggest that not only
was the acceleration of household growth reported for 2012 less than originally
reported, but also that growth has slowed in the first half of 2013. Back in 2012, HVS data were showing that annual
household growth in the US had rebounded significantly, to a level of 980,000
for the year after averaging less than 600,000 over the previous five years. With the Q2 2013 data release, however, the
HVS also revised its 2012 annual household growth estimate down by over 100,000
households to a less robust level of 857,000.

On top of the downward revisions to 2012 growth, HVS data now also show
that in the first quarter of 2013, the year-over-year pace of household growth
plummeted back to the lowest rate since mid-2010, down to 403,000. While the Q1
number could have been a statistical blip, the Q2 number shows household growth
still just 746,000 - well below last year’s annual pace. Taking these two quarters into account, the most
recent annualized household growth rate is just 751,000. Given this pace household
growth will have to average nearly 1.2 million in the second half of the year just
to match last year’s reported growth.

The Q2 HVS data also show that the homeownership rate failed to
reverse its downward course in the second quarter of 2013. While the Q2 rate of 65.0 percent is
unchanged from Q1, it is still 0.5 percentage point below the homeownership
rate from a year ago. Of particular
concern is that behind the homeownership rate decline is a contraction in the
number of homeowners (Figure 2). Based on a 4-quarter moving average
estimate of households, the number of homeowners was down by 178,000 in the second
quarter of 2013. This contraction is on
top of newly released revisions to historical HVS data that show fewer
homeowners in 2012 than originally reported. In all, the number of homeowners in
HVS is 1.5 million below its peak at the start of 2007.

These trends suggest that recent gains in home prices and single
family home construction have been driven more by a restricted supply of homes for
sale amid demand from existing owners rather than by growth in first-time
homebuyers adding to the number of owners.
With continued weakness in household growth and declines in the outright
number of homeowners, the latest HVS data suggest that for-sale housing markets
may face challenges to a sustained recovery if the inventory of homes for sale
expands but the number of households looking for homes does not.

About

Drawing from the ongoing research and analysis of the Harvard Joint Center for Housing Studies, Housing Perspectives provides timely insight into current trends and key issues in housing. We dig deeper into the housing headlines to discuss critical issues and trends in housing, community development, global urbanism, and sustainability. Posts are written by staff of the Joint Center, drawing from their wide-ranging knowledge and experience studying housing. We hope you will follow Housing Perspectives, and we welcome your comments.

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